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Securities Law

Advocacy Groups and Independent Advisors Criticize Stivers' MA Bill

MAR 4, 2013 4:51pm ET
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A municipal advisor bill pending in Congress threatens to erode key protections afforded to taxpayers and municipalities by the Dodd-Frank Act, representatives from a public advocacy group and organizations representing independent advisors warned on Monday.

Opponents to the “Municipal Advisor Oversight Improvement Act of 2013,” introduced in mid-February by Rep. Steve Stivers, R-Ohio, told reporters during a conference call that the bill would let big banks and swap dealers escape Dodd-Frank’s fiduciary duty provision, which requires MAs put clients’ interests ahead of their own.

The bill, which has support from dealer groups, will give a “blanket exemption” to those “at the center” of recent market abuses, said Marcus Stanley, policy director at Americans for Financial Reform, which helped organized the call.

“We need to see the SEC finalizing a rule that requires a fiduciary duty for any advice given to a municipal entity ... regardless of who gives [it],” said Stanley.

Similar to bill from former Rep. Robert Dold, R-Ill., that passed the House last year, Stivers’ bill would define MAs as those engaged with issuers to provide financial advice for compensation. The measure has exceptions for dealers seeking to be underwriters and those providing related advice, as well as bankers, swap dealers and governmental board members. It was introduced as the Securities and Exchange Commission finalizes its MA definition, which is expected to be issued soon.

“[This bill] will turn us back to a time when underwriters, or anyone, could act as a financial advisor without having a corresponding … fiduciary duty,” said Nathan Howard, an attorney with Kodner Watkins & Kloecker LLC, who was on the call.

The bill would let underwriters escape the duty by not receiving compensation for advice they give, said Howard, who represents the National Association of Independent Public Finance Advisor, but was not speaking for the group.

Stivers’ office said in a statement that Republicans and Democrats acknowledge that Dodd-Frank’s definition was too broad, and noted that Dold’s bill had bipartisan support. “The original language that defines municipal advisors includes people who are already regulated somewhere else, like bank tellers, attorneys, accountants, and volunteers on boards. Washington needs to fix the mistake that Washington made,” the statement said.

Michael Decker, co-head of municipal securities at the Securities Industry and Financial Markets Association, said Dodd-Frank primarily aims to regulate independent MAs and that underwriters are explicitly excluded from the definition. “[This] bill just clarifies the already-existing underwriter exclusion, but would also ensure that a dealer is engaged explicitly by a client to be an advisor ... would have a fiduciary duty,” he said.

Decker called a fiduciary duty “inconsistent” with underwriters’ role as buyers of securities and said rules implemented under Dodd-Frank imposed significant requirements on dealers that execute swaps with municipalities. They require swap dealers to ensure an advisor works on a deal, but do not regulate advisors.

But Stanley said the swap rules are weak and lack a fiduciary duty, which elevates the need for addition protection.

Susan Collet, senior vice president of government relations at Bond Dealers of America, said the bill would create regulatory parity between dealer- and non-dealer-affiliated MAs. She said non-dealer affiliated MAs “have worked to confuse the roles of regulated broker-dealer municipal advisors, regulated underwriters and the unregulated community.”

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